Herbalife Stock Tanks on Earnings, Not Ackman

by Dan Burrows | July 29, 2014 1:15 pm

Herbalife Stock Tanks on Earnings, Not Ackman

Herbalife (HLF[1]) earnings missed analysts’ average estimate for the first time in almost two years, hurt by tough comparisons and costs to defend itself from hedge-fund billionaire Bill Ackman. Herbalife stock is reeling on the news.

True, Herbalife stock is up more than 50% since Ackman revealed his massive short position, claiming HLF is a scam. Fraud charges have yet to stick to Herbalife, and plenty of big egos with large sums were only too happy to take the other end of Ackman’s trade. But that hasn’t kept Herbalife stock out of the red this year, even as Ackman’s attacks miss their marks.

But Ackman is contributing to higher costs at HLF, which helped it to fall short of Wall Street estimates in the latest quarter. Revenue likewise came up short, and that caused Herbalife stock to tumble.

Herbalife Stock Falls on Sales, Earnings Miss

For the most recent quarter[3], HLF earnings came in at $1.55 per share on an adjusted basis, or two cents short of forecast. More worrisome for anyone holding Herbalife stock was a revenue miss — and the fact that HLF cut its revenue projection for the full year. Sales are now expected to grow in the rage of 8.5% to 10.5%, vs. a prior forecast of 10% to 12%. Weakness in the U.S. is to blame, HLF said, while saying nothing about the latest attack by Ackman.

Herbalife chalked up the weak performance to tough year-ago comparisons, when it had its best quarter in history. Either way, Herbalife stock plunged on the news and continues to have a lousy year.

For 2014 so far, Herbalife stock is off 24% and has done so with volatility. HLF was off as much as 38% in the spring and hasn’t been in positive territory for the year-to-date since early January.

Heck, HLF even raised its full-year earnings forecast and the market didn’t care.

As we’ve written time[4] and time[5] again, retail investors have no business getting involved in Herbalife stock. Whether the Federal Trade Commission ultimately decides to shut it down or not, HLF doesn’t much trade on fundamentals, and the technicals aren’t favorable[6] either.

Herbalife stock has become a battlefield for billionaires. If it weren’t for Ackman’s short position, HLF would get little to media attention at all.

The best thing regular investors can do is to flat-out ignore Herbalife stock.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.